US Should Be Cautious With New Chip Equipment Controls, Work With Allies, Researchers Say

The White House, in its AI Action Plan released this week, called on U.S. agencies to plug loopholes in existing chip controls by restricting the component sub-systems of chip manufacturing equipment (see 2507230028). Scanlon, in commentary published by CNAS on the new action plan, said the U.S. should “absolutely close genuine loopholes” in those controls, calling that a “logical next step” to limit China’s advanced chip production.

But she also said it “must be done carefully, precisely, and multilaterally.” The Commerce Department can do that by beginning a “detailed study” to identify the component subsystems in which the U.S. and its allies hold a large advantage, and she said that China needs to develop its own extreme ultraviolet lithography systems.

“But further controls must be implemented cautiously,” Scanlon said. “New restrictions must balance the goal of curbing China’s capabilities with preserving U.S. leadership in semiconductor manufacturing. If implemented bluntly, they risk” hurting the ability of American firms to reinvest revenue into advanced research and development.

She also said any new controls should be coordinated with other countries that also produce those subsystems, noting that the AI Action Plan calls on the government to align controls with partner nations.

“If foreign competitors can still sell similar products without restriction, U.S. firms will lose market share and revenue that fuels reinvestment in advanced R&D,” Scanlon said. “Broad, unilateral restrictions that outpace global consensus may end up strengthening competitors -- and undermining the very goals they intend to serve.”

Although the plan said the U.S. should convince other nations to impose similar controls through diplomacy, it also said the government should feel free to use more coercive methods. It specifically mentioned the Foreign Direct Product Rule, which Commerce could use to place export license restrictions on certain foreign-made items that are made with U.S.-origin software or technology.

Emily Kilcrease, director of the CNAS Energy, Economics and Security Program, said U.S. allies are already “well aware” of Commerce's extraterritorial powers, and it “would be helpful to see more emphasis on positive inducements to align with the United States.” She and CNAS senior fellow Geoffrey Gertz floated an idea in January for new economic security agreements, which could be used to integrate export control commitments into broader trade deals (see 2501230001).

Those deals could provide incentives, such as a fast-track licensing process, “as part of a broader deal to strengthen controls vis-a-vis third party threats,” Kilcrease wrote. “Extraterritorial controls are the hardest to enforce and easiest to circumvent, so should be sparingly used with those constraints in mind.”

Another portion of the AI Action Plan calls on U.S. agencies to develop a new “technology diplomacy strategic plan” to “induce” key allies to adopt similar AI protection systems and export controls. Gertz said the Trump administration could use this plan to address the lack of clarity surrounding its chip controls, noting that the administration recently reversed its restrictions on Nvidia’s previously controlled advanced H20 chips as part of trade negotiations with China (see 2507150013).

“Many partners and allies have questions on what exactly is the U.S. strategy on semiconductor export controls,” Gertz said. “The administration should use this diplomatic strategic plan to provide greater clarity and assurances on how it intends to use export controls in the context of trade and technology competition with China.”